This invention relates to a system and method for evaluating liability and settlement opportunities, and more particularly, to a system and method for concurrently evaluating environmental liability and settlement opportunities among multiple potential responsible parties (PRPs) and multiple insurers at multiple environmental sites.
This invention also relates to a system and method for evaluating how an aggregate insurance premium may be allocated among multiple PRPs and their insurers when insurance is used to transfer risk at an environmental site.
An environmental site (site) is a location where an environmental event has occurred resulting in liability to one or more parties as a result of such parties"" actions at the location. Environmental sites frequently arise after disposal of hazardous substance by multiple parties over numerous years. The Government established Superfund legislation which made all parties who contributed or transported waste to the site and all owners and operators jointly and severally liable for the cost of cleaning up the site. Superfund legislation creates a very complex situation for allocating liability and settling claims among often hundreds or thousands of parties at a single site, each of which may be seeking some insurance coverage under multiple policies from different insurers. Many state environmental cleanup laws follow the federal model.
Pursuant to authority granted under Superfund, or equivalent state laws, the Environmental Protection Agency (xe2x80x9cEPAxe2x80x9d) can force site cleanup. Because the EPA is not required to allocate liability and the joint and several nature of the imposed liability, it is usually left to the multiple PRPs to divide and allocate total costs. The funding of the cleanup costs is further complicated by demands by many PRPs for contribution from different and often numerous insurers. The obligation of insurers to contribute can vary greatly depending on what state law applies. The willingness or ability of PRPs to resolve their differences may depend on the extent to which the numerous insurers agree to contribute.
Environmental and related insurance coverage claims have generated an enormous amount of litigation. Such litigation is often complex and difficult to settle. However, even the successful resolution of a claim of a single PRP against its multiple insurers still leaves unresolved the allocation issues between that single PRP and the multiple other PRPs at the site. Indeed, the fact that a single PRP""s issue of relative liability in respect of other PRPs at a site is unresolved often impedes the resolution of the single PRP""s claim with its insurers. As the liability horizon is expanded beyond a single site to multiple sites, the entire complexity increases accordingly.
The fragmented, yet interdependent, nature of the liability structure, the importance of differing state insurance coverage law and the large number of sites make traditional claims resolution processes slow, inefficient and costly. A study of major insurers revealed that eighty-eight percent (88%) of their total dollars for environmental claims was being spent on transactional (claims processing and evaluation) costs.
Settlement is further complicated in cases where there are large numbers of small or xe2x80x9cde minimisxe2x80x9d PRPs, i.e., parties having minimal contact with the environmental site. For example, in a battery reclamation operation a service station owners collect old batteries and deliver them to a reclamation facility. Literally, many hundreds of small companies may have delivered minimal waste to the site. The entire pool of such PRPs may have only a small portion of the total liability. For example, 1200 PRPs may be identified as having involvement at a site, where 1000 of the 1200 contribute only to 5 percent of the total pollution.
To facilitate settlement, the Government may offer the small PRPs the opportunity to settle for a de minimis amount, say $25,000. While often a nominal amount, the de minimis settlement offer is often twice as high as the party""s volumetric share of the cleanup costs. Not all of the small POPs may accept the offer, indeed often many do not. Those that do not accept the de minimis settlement are then included with the remaining 100, complicating final settlement. The parties having substantial liability may wish to seek contribution from the non-settling de minimis PRPs. However, litigation against a large number of small parties with small liability can be expensive.
Many de minimis PRPs also have insurance coverage for their liability. The insurance coverage claims for these de minimis claims have the same degree of complexity, but the relatively small dollars at issue for each individual party makes the traditional claims resolution process inefficient and disproportionately costly.
There is a need for a system and method of concurrently evaluating liability among multiple PRPs and their insurers which can facilitate a qualitative determination of likelihood of outcome to all parties. There is a need for a system and method of efficiently obtaining from large numbers of interdependent parties their realistic settlement positions and then evaluating these offers of settlement among multiple insureds and insurers to facilitate a qualitative determination of likelihood of outcome to all parties. These is a need for a system and method which incorporates an independent state law adjustment factor and an objective, independent and legally based means of allocation of liability among insurers of a PRP in order to facilitate a qualitative determination of likelihood of outcome to all parties. There is a need for a system and method to review and evaluate simultaneously the positions of multiple parties and multiple sites so as to provide a qualitative likelihood of outcome that addresses the fragmented and interdependent nature of the underlying environmental remediation liability cleanup scheme.
The risk of liability that all PRPs or a significant group of PRPs (and their insurers) have with respect to a given site can be insured. Such insurance can both reduce total costs to the parties and bring finality and certainty to the involved PRPs and their insurers. However, a critical and difficult step in obtaining such insurance is the agreement of a sufficient number of PRPs to transfer their risk through the purchase of insurance. This may require that each PRP obtain contribution under some number of past insurance policies. There is a need to efficiently assemble the contribution from multiple PRPs to pay the aggregate premium for insurance which will assume the aggregate liability of the covered multiple PRPs at an environmental site. There is also a need for a method to evaluate the proportionate share of the aggregate premium contribution for each of the multiple PRPs to be covered by such insurance.
A system and method of evaluating liability among multiple potential responsible parties (PRPs) and their insurers relating to multiple environmental sites according to the invention supports mediating and arranging settlements of environmental cleanup liability between PRPs and insurers and in appropriate cases between multiple PRPs. The system resolves, addresses and handles fragmentation in effecting settlements and handles the interdependence among the parties. According to the system and method, data is gathered, relationships among the data are calculated, the allocation of liability among a PRP and its multiple insurers is evaluated and a state adjustment factor is applied to the data. Deviations from a consistent independently determined expected outcome is calculated (xe2x80x9cnormal valuexe2x80x9d), and a qualitative decision pertaining to the likelihood of outcome is proposed to the parties.
While the system and method for evaluating liability may be used by anyone, it is anticipated that only independent third parties will use the system and method. The system and method depend upon the parties having environmental liability providing their confidential settlement data. While it is certainly possible that the parties may be willing and agree to provide their confidential information to another party to the environmental liability, it is believed to be less likely to occur. Thus, in the description of the system and method of evaluating liability, the user of the system and method is sometimes referred to as a third party.
Risk data pertaining to multiple PRPs having liability at the environmental site (including the scope and amount of insurance coverage, if any) and settlement data (confidential offers of settlement from insureds and insurers) are obtained. Relationships among the PRPs and insureds are calculated. A legally based allocation methodology and a state adjustment factor, selected on legal choice of law principles, are applied to the relationship data. Anticipated liability data is calculated. A qualitative decision pertaining to the anticipated liability, or case settlement value, is proposed to the parties. State adjustment factors are provided by an independent third party and are used to adjust the insurer""s and PRP""s relative shares of liability. An allocation theory or algorithm is applied to determine relative contributions between and among various insurers and the PRP/policyholder. Settlement data is provided to an independent third party in confidence.
Risk data includes liability data for the site.
These data are calculated based on volume of pollutants and dollar amount to clean up the site (xe2x80x9cvolumetric share of liabilityxe2x80x9d). Risk data may also include assigned exposure amounts not based solely upon volumetric share of waste, such as a specific settlement demand from the Superfund manager (xe2x80x9callocated share of liabilityxe2x80x9d).
Probable total insurance coverage for each PRP is calculated for a PRP""s liability at each site and for all sites within the system.
Many PRPs may have multiple insurers, covering different periods of risk. Time of risk data and time of insurance coverage data is calculated. Time of risk is the time for which the particular PRP has potential legal liability for events or damage at the environmental site. A PRP""s involvement at the site is some period of contact at the site which results in legal liability to the PRP. The actual extent of a PRP""s involvement is a factual determination which may depend on the particular theory of law applied. Time of coverage is the time each insurance policy was in effect. The probable allocation of total insurance liability among various insurers for a PRP is calculated. The proportionate share of liability that might be allocated to the PRP and/or to uninsured periods is calculated. The state adjustment factor is applied to this amount and the expected normal liability of each party is calculated (the expected xe2x80x9cnormal liabilityxe2x80x9d).
Settlement data are the insurance companies"" offers of settlement and the insured""s co-payment offers. This information is provided in confidence to an independent third party (user) and the third party does not divulge the information to either insured (PRP) or its insurers. The settlement data is compared to the risk data and the expected normal liability for each PRP and insurer. A calculation is made to determine absolute and percentage deviation between each party""s settlement position (offer or demand) and the expected normal liability of each party. This calculation is used by the third party to determine settlement groupings and priorities. No quantitative results are provided to any party. A qualitative likelihood of outcome is provided to all parties, using both absolute dollar differences in position and the calculated absolute and percentage deviation amounts to arrive at the qualitative evaluation.
This qualitative likelihood of outcome gives each party to the environmental action an integrated result, based on multiple PRPs, multiple insurers and independently calculated expected normal liabilities. The calculations and qualitative analyses may be made across variable groupings of PRPS at a single site, multiple sites and with a single PRP and one or more insurer with respect to one or more sites. Settlements are easier to effect among the parties because all parties are provided with an independently developed qualitative result. The system and method of the present invention eliminate the fragmented solutions of the prior art.
Additionally, the system and method can be modified to include historical data pertaining to similar sites. The system and method can also be applied to subsets of PRPs, for example, all de minimis PRPs. The system and method can be used to evaluate complete environmental liability releases by a PRP for all policies issued by an insurer, including unknown liabilities as at yet unidentified sites.
In another embodiment of the invention, the system and method may be used for efficiently assembling and evaluating the proportionate contributions from multiple parties to pay an aggregate premium for insurance which relieves parties of environmental liability. The method and system can also be employed to allocate the aggregate insurance premium among multiple parties whose environmental liabilities would be covered under, or removed by, the single policy of insurance. The total insurance premium is first allocated to each PRP that would be covered under the policy in proportion to either relative volumetric or allocated share of liability of each PRP in the group. This premium amount is then input into the system of the invention as the PRP""s total liability for the site(s) covered. From that point, the system of the invention operates as described herein to determine how the PRP""s premium share should be allocated between the PRP and its past insurers who will be relieved of liability exposure through the purchase of the environmental coverage covering a group of PRPs.
The system and method of the invention eliminates the fragmentation on the allocation of an aggregate premium for a single environmental policy which will eliminate or mitigate the liability exposure of multiple parties, including PRPs and their insurers, for a single site or multiple sites. The system and method of the invention also allocates the aggregate premium for such policies of insurance by including an independently determined and consistent state coverage law adjustment factor, selected on alternative choice of law principles, and the use of legal principles used to allocate environmental liabilities between and among a PRP and one or multiple insurers.